Return to Transcripts main page

QUEST MEANS BUSINESS

Japan Earthquake; Burberry Backlash; US Investors Cautious; European Markets Recover; Market Volatility; US Spying Allegations; Branding Battle

Aired July 11, 2014 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(NEW YORK STOCK EXCHANGE CLOSING BELL)

RICHARD QUEST, HOST: It's a Friday, the market is up, still under 17,000. A busy day for Operation Backpack Volunteers of America as they

ring the closing bell. The bell's rung and the gavel has fallen. On a Friday, July the 11th.

Checkmate for Burberry. Shareholders show their fury at the CEO's ginormous pay packet.

Finding the golden mean. Georgia's prime minister tells me diplomacy can fix Ukraine's crisis.

And one game, two teams, three stripes. The Adidas chief exec says the World Cup final is a dream come true.

I'm Richard Quest. It may be Friday, but I still mean business.

Good evening. Japan's meteorological agency is reporting tonight that an earthquake has struck Fukushima. The 6.8 magnitude earthquake struck a

short time ago. A tsunami warning has been issued. Fukushima was the site, of course, of the nuclear crisis in 2011 after an earthquake and

tsunami had knocked out the power plant there.

That's the situation at the moment. We need to find out how serious. Our meteorologist at the CNN World Weather Center, Alexandra Steele, joins

me now. First of all, tell me what we know about the earthquake, and then we can look at the potential of a tsunami.

ALEXANDRA STEELE, AMS METEOROLOGIST: All right. So, this is what we know. Again, as you said, 6.8 magnitude, and the depth is key here. It's

pretty shallow, 10 kilometers deep. Now, how you think about the shaking and what potentially can happen, the deeper it is, the deeper the emanation

of this earthquake, the farther from the surface, so the shaking isn't quite so bad.

So, if this was a 500 kilometer depth, certainly it wouldn't seem as bad as 10 kilometers. So the more shallow, certainly closer to the

surface, thus the surface where we are closer to where the epicenter of this earthquake was. So P.S., it is not that deep, it is shallow.

Also of course, the region, it's about -- you can see here, about 150 kilometers east-southeast of Namie, but 100 miles east of Honshu, which

you're probably more familiar with.

So again, 6.8, pretty shallow in depth, the location east of Honshu, which of course is where we've certainly seen Fukushima. So, here's the

location right here. And of course, in northeastern Japan here on the coast, that's where now we do have tsunami warnings, Richard.

So of course, we have had the earthquake. Of course, there are very big fears, one of course, the relative closeness to Fukushima, and also, of

course, the tsunami threat. First there was a tsunami advisory, now we have tsunami warning, so certainly, all eyes right here as we learn more.

Certainly quite a scary scenario, not too far off the coast, and again, tsunami warnings have now been issued, 6.8 magnitude. And certainly

as we learn more and get more with this pretty shallow earthquake, we'll get back to you coming up in just a little bit, Richard.

QUEST: Right, but just looking at that time scale, the incident happened at --

STEELE: 19:22.

QUEST: 19:22 Universal Time, or Greenwich Mean Time, which is about 40 minutes ago. So, how does this tend to play out in terms of when we

would expect to see any effects, any tsunami? Are we in any -- are we talking minutes, hours, several hours, what would you think?

STEELE: Well, as this kind of rolls along, the tsunami is just this massive wave. So obviously, this meteorological associations are looking

out, satellite pictures looking out, so all eyes and ears watching this as the hours -- really, minutes into hours -- already we went from a tsunami

advisory just moments ago to tsunami warning, so things happen pretty quickly.

So, we'll certainly begin to know quite soon what will happen and how and if, or they could cancel this tsunami, what is now a warning, began as

an advisory. So, things change pretty rapidly as we learn more.

QUEST: Right. Thank you --

(CROSSTALK)

STEELE: And you see the water begin to move as well.

QUEST: Right.

STEELE: So, we'll certainly know that.

QUEST: And I'm just looking at some news that's coming to us from Reuters. Thank you, Alexandra.

STEELE: Yes.

QUEST: The Reuters News Agency is quoted -- forgive me looking away while I read off the screen -- and it's now reporting a minor tsunami of up

to one meter was issued for the northeastern coast. No immediate reports of abnormality. This is according to the Japanese public broadcaster NHK.

We will, of course, keep you fully informed on that.

Now turning to our business agenda. Tonight, Burberry shareholders have poured a torrent of scorn, maybe even anger, over the chief exec's

multimillion-dollar pay packet. Christopher Bailey is in line for a fat salary and even fatter bonus, and a great deal of free shares.

Investors in London have cast a dark cloud over all of that. It's one of the biggest protests by investors in boardroom pay for some time. More

than half the shareholders, nearly 53 percent of shareholders, voted against Bailey's deal despite Burberry's assurances it's in line with the

rest of the sector.

At the super screen, where we have lots of check, checkmate. So, first of all, these are the parties involved. Angela Ahrendts, of course,

is the former chief exec. She went off to Apple for reportedly to be head of marketing or retail marketing, I think it was, for some $60 million.

Christopher Bailey became the chief exec. He took over from Angela, who joined Apple. Now, his base salary, bearing in mind he was the

creative designer director. He was not running the company. But he took over, and his basic salary, a mere $2.6 million.

Add onto that the bonus of up to 200 percent, a pension of around 30 percent, and half a million free shares to boot. It's a large amount of

remuneration for somebody who's never run a company. Shareholders, not surprisingly, were unimpressed, and 52.7 percent voted against the

remuneration package.

It was a non-binding vote. The chairman of Burberry said he was disappointed, very disappointing, and added the company would need to

reflect and talk to shareholders.

What happened today raised questions, the whole issue on who runs the company, the board or its shareholders? I spoke to Oliver Parry from

Britain's Institute of Directors.

(BEGIN VIDEOTAPE)

OLIVER PARRY, INSTITUTE OF DIRECTORS: It's a pretty big shareholder revolt today, Richard, so yes, the board are going to have to take into

consideration today's vote, and they need to respond pretty quickly.

QUEST: They don't just have to take it into consideration, they have to do something. The board has got to realize, surely, that the

shareholders own the company and have said no.

PARRY: Absolutely. So what the board needs to do is they need to more tightly link Mr. Bailey's pay to performance targets, and perhaps most

importantly of all, they need to be more transparent and open about it.

I think significantly, what this indicates today is that he's an unproven CEO. He's been a superb creative director, but he is unproven.

And the pay package today was clearly too much for many shareholders. They need to see him perform as chief executive.

QUEST: There are two very big issues here. One is Burberry's decision to grant such a pay packet, and the other is they're obviously so

out of touch with their shareholders that they didn't realize this wouldn't go down very well. Both of them are serious.

PARRY: I couldn't agree with you more. Absolutely. Their views are twofold: one, he -- because he'd done such an enormously fantastic job as

creative director, they wanted to retain him, and therefore, this is why the pay has been so large.

But number two is they are confident that he'll be able to come in as CEO and do a fantastic job. Shareholders have looked at it today and said

uh-uh, we need to see a bit more.

QUEST: Isn't it the job of the chairman and the board to ensure that deals like this aren't done that shareholders will subsequently revolt

against?

PARRY: There needs to be more transparency, absolutely. So, the board going forward need to be more open and transparent with their

shareholders, and we would like to see more of that.

The IOD have been calling for shareholders to more closely examine executive pay for some time, so we see today's revolt as a positive thing.

Shareholders have taken a look, and they've exercised their right, as you said, as owners of the company.

QUEST: And finally, the age-old line that we've heard in this case, the age-old line, if we didn't pay him it, somebody else would, it doesn't

hold water, does it, these days? It really doesn't.

PARRY: I have to agree with you. It just doesn't. I noticed that the Burberry press office had been briefing today that compared to the CEO

of Prada, Mr. Bailey's salary is considerably less. Well, probably the CEO of Prada is an experienced CEO and they've been in that job for some time.

I'll return to the point again: he hasn't been CEO for very long. He's only been creative director, and the shareholders want to see a lot

more.

(END VIDEOTAPE)

QUEST: Caution has been the order of the day amongst investors after yesterday's dramatic falls sparked over those fears in the Portuguese

banking system. Alison Kosik is with me now. Well, it was Portugal yesterday, but look at this, fascinating. Now look.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Yes. Red at first --

QUEST: Red.

KOSIK: -- and then a turnaround.

QUEST: But not just a little bit. At 2:00.

KOSIK: Right.

QUEST: Just after -- what happened?

(CROSSTALK)

KOSIK: You know why? Because everybody stands in line for their coffee at 2:00 --

(LAUGHTER)

KOSIK: -- and then they feel revived. And I think maybe that's what happened. Because everybody was sleeping. We only saw the market move a

little, because little was moving the market today. It was one of those typical summer days.

We are in the middle of second quarter earning season. We heard from Wells Fargo, whose earnings were decent. But I think what everybody's

waiting for is next week, when we hear the heavy hitters, the banks: CitiGroup, JPMorgan, Goldman Sachs. I think the wait is on to hear those

banks to get a better idea if the first quarter was just a fluke and if things are maybe turning around.

QUEST: In other words, a nice pretty picture, but nothing more than that.

KOSIK: Yes. Just a quite, quiet summer day.

QUEST: Have a lovely weekend.

KOSIK: You, too.

QUEST: See you next week?

KOSIK: Thank you, yes.

QUEST: Thank you. European markets regained composure. Investors took comfort from assurances from Banco Espirito Santo about its liquidity.

Among the major markets, it was mainly green arrows, which reversed the losses on Thursday. Germany saw falls in industrial production. The DAX

still managed to eke out a small gain.

On the periphery, gains across the boards, as you can see. Even Portugal hasn't quite -- but not even partially managed to recover much.

Mohamed El-Erian is the chief economic advisor to Allianz. Although the market convulsions maybe waning, there is still an open sore to deal

with. Europe's persistently low growth exposes all sorts of financial vulnerabilities. Mohamed joins me now from California. Good to see you,

sir, as always.

MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISOR, ALLIANZ: Thank you, Richard.

QUEST: Now, we had this very nasty wobble because of Portugal -- Portuguese banks. Was that just something and nothing and frankly we can

just move on?

EL-ERIAN: Yes and no. We can move on because it's not systemic in nature. Yes, Espirito Santo is in a mess. Yes it impacts the bank, and

it's a spaghetti bowl of interconnection when you get to these large conglomerates, but it's not systemic enough. The size isn't that large

relative to what Portugal can do and what the ECB.

So the good news is it's a wobble, but it's containable. The bad news, it reflects something much deeper, Richard. When you grow very, very

slowly, or you don't grow at all, all sorts of things come to the surface. And that's going to be the future of Europe until we get to a higher growth

scenario.

QUEST: What is stopping Europe from growing faster? I know obviously there's still the underlying debt problems, but for goodness sake, the ECB

has pumped trillions. The interest rates are negative. Yes, we've had austerity, but in many cases, that's now starting to be reversed. So what

more needs to happen?

EL-ERIAN: So, four things need to happen. One, the euro is too strong, and that impacts competitiveness. Secondly, not enough is being

invested in the growth engine. Some of the European countries had to find new growth models. Not enough is being done on that.

Third, you mentioned it, there's still some debt overhang. As long as people worry about debt, they're not going to put in more investment. And

finally, it's an unbalanced eurozone. Where there is the wallet to spend, there's no will, and where there's the will to spend, there's no wallet.

So, Europe needs a comprehensive approach to address all four of these issues.

QUEST: Well, when you talk about the euro and the strength of the euro, which perhaps is somewhat baffling, bearing in mind the sclerotic

economic growth, you end up starting to have technical discussions on interest rate differentials and liquidity issues.

What is propping up that euro? Which frankly, as against the US dollar, which is where we're going to have higher interest rates in the US

sooner rather than later, it should be reversing the gains.

EL-ERIAN: It should be and it's not.

QUEST: Why?

EL-ERIAN: And what's even more interesting is that you would have -- well, you would have thought that at least it would have weakened after

yesterday's news out of Portugal. The reason is because people do not believe that the monetary conditions are going to differ by the extent

that's needed.

They're waiting for the ECB to do more, and they're waiting for the Fed to bring forward its interest rate guidance. So two things have to

happen, and they haven't happened so far.

QUEST: But -- just to pin you down on this, Mohamed, it -- as we move forward, are -- is the risk on the downside for the euro?

EL-ERIAN: Yes. If you put a gun to my head and say in a year's time, will the euro be weaker, I will say most probably yes. And if it's not,

then we have bigger problems.

QUEST: And sterling? Same again? Because sterling has rocketed up to ridiculous levels of $1.72 against the dollar.

EL-ERIAN: That's a harder one, because there, growth has picked up, and as long as the housing market is contained, then you could see sterling

staying relatively stable relative to the dollar, but strengthening relative to the euro.

QUEST: I read your fascinating piece on Brazil as regards Brazil and the World Cup. On a football question, who will you be rooting for this

weekend, Brazil or Argentina?

EL-ERIAN: Well --

(CROSSTALK)

QUEST: I'm sorry --

EL-ERIAN: -- I'll be rooting for Germany --

QUEST: Sorry, Germany. I beg your pardon.

EL-ERIAN: -- versus Argentina in the final.

QUEST: I beg your pardon. Germany, of course, because it was --

EL-ERIAN: But that's a nice Freudian slip.

QUEST: Yes.

EL-ERIAN: I'll be rooting for Germany versus Argentina, but I'd like to see Brazil get third place. I -- my heart went out to their fans after

what happened against Germany. That was a real debacle.

QUEST: Thank you very much for putting me right. It was your article, of course, was about Brazil -- after the defeat. I'll post the

article online so that you can enjoy. Mohamed, have a good weekend.

Now, when we come back on QUEST MEANS BUSINESS, there'll be more Freudian slips as the program moves on. Alleged espionage by America on

German soil, it sparked outrage. We'll examine the possible economic fallout in just a moment. Germany, Brazil, Argentina. What's the

difference?

(RINGS BELL)

(COMMERCIAL BREAK)

QUEST: I must update you about the earthquake and tsunami warning, which has struck off the east coast of Japan. It was a 6.8 magnitude, and

a tsunami advisory has now been issued. You'll remember the significance of all of this is that it is near Fukushima, where there was the last

earthquake, which of course devastated the nuclear power plant there and is still causing great problems.

Well, anyway, Reuters citing Japan's public broadcaster, the NHK, a warning for a minor tsunami, up to one meter, has been issued for the

northeastern coast. And in the hours ahead, as this continues, we'll obviously monitor it very closely.

Germany's finance minister has blasted alleged espionage by the United States, saying, "One can only cry over so much stupidity." Berlin has

asked the CIA station chief in Germany to leave on Thursday after two Germans were allegedly caught spying for America. Germany's foreign

minister called the move to send the US spy home chief "a fitting reaction" to a breach of trust.

(BEGIN VIDEO CLIP)

FRANK-WALTER STEINMEIER, GERMAN FOREIGN MINISTER (through translator): Our decision to ask the current representative of the US intelligence

services to leave Germany is the right decision, a necessary step, and fitting reaction to the breach of trust which has occurred. Taking action

was unavoidable, in my opinion. We need and expect a relationship based on trust.

(END VIDEO CLIP)

QUEST: Michael Werz is a senior fellow at the Center for American Progress. He joins us now from Washington. Honestly speaking, the

Americans and the Germans, well -- will the Americans be upset about all of this?

MICHAEL WERZ, SENIOR FELLOW, CENTER FOR AMERICAN PROGRESS: Yes. This has, actually, created quite some shockwaves here in Washington. The fact

that a CIA station chief is being expelled from Germany is unique, has never happened before. And people are a little bit scratching their heads

and trying to figure out what went wrong.

And it feeds into an overarching conversation in Washington, where we tried to figure out the cost-benefit analysis of US intelligence activities

abroad, especially among friendly countries.

QUEST: Why -- what where they doing? All right, we know they were doing Chancellor Merkel's phone and all of those things. But what else

were they doing against a friendly country that's got everybody so riled?

WERZ: Well, the people here in the intelligence community would argue that it's not against the friendly country, it is just part of the business

that you trust your friends, but you also want to make sure that you get the right information and have a verification of that.

And so, the community says that the cooperation between German and US intelligence services is not only benefiting Germany to a great deal, but

it's also one of the deepest and friendliest we have here in the United States.

At the same time, public perception obviously in Germany is vastly different, and this has really grown into a full-fledged crisis, and nobody

really seems to have an idea of how to contain this at this moment.

QUEST: You see, that's the problem, that's really the issue here, isn't it?

WERZ: Yes.

QUEST: Because we're talking, as the foreign minister said, you're talking about a question of trust. And if you are -- if your intelligence

officials are trying to get spies in a friendly government's inner sanctum to hand over papers you're not supposed to see, how do you rebuild trust

after that? Particularly if you're not prepared to say publicly, sorry.

WERZ: That's actually a very difficult question to answer, and I think it's going to be hard for the US to win that public diplomacy battle

on that field. At the same time, it's important to acknowledge and also to reiterate that Germany is benefiting from the security cooperation with the

United States.

And also that at least partially -- and I don't want to make any excuses -- but at least partially, it seems that some people in Germany

feel quite comfortable bashing the NSA and the US intelligence community, taking the moral high ground, so they don't have to have a discussion about

what is Germany about, what does the country stand for, what are German national interests all over the world, and how does intelligence-gathering

figure into all of that?

That's a discussion that Germany needs to have, and some are reluctant to engage in that.

QUEST: Sir, thank you for joining us. I much appreciate it, putting it beautifully into perspective for us tonight. Thank you.

WERZ: Thank you very much, and don't take Germany once again out of the World Cup finals, you're not going to make any friends in Berlin.

(LAUGHTER)

QUEST: Oh, boy! Thank you, sir.

WERZ: Thank you.

QUEST: Maybe the CIA had got to me first. You never know. I had been turned.

In this Sunday's World Cup final -- no one's going to let me forget that I got the wrong way around, are they tonight? Germany are donning

their red and black stripes, Argentina their bars of sky blue and white, and we'll tell you about a very profitable similarity. Because there's one

company, frankly, that doesn't care who wins because they've already won.

(RINGS BELL)

(COMMERCIAL BREAK)

QUEST: Some people say Ah-dee-dass, other people say A-Dee-dus. Whichever you say, it is a dream come true, words you won't often hear from

a chief exec describing their marketing strategy. Adidas -- A-Dee-dus -- is on the ball, the official ball of the World Cup.

And in the World Cup branding battle between Nike and Adidas, it appears game over, Adidas has already won. Because both teams in this

Sunday's World Cup final, Argentina and Germany, will be sporting Adidas shirts.

It also looks like a landmark day for Luis Suarez, who is also sponsored by Adidas. No, he hasn't bitten anyone. He's just announced

he's joining Barcelona, $128 million transfer.

Adidas will receive more exposure than ever from Suarez on his new team. One wonders whether they're sponsoring his dentist. And the company

is, no doubt, hoping there will be no more controversy along the lines of the biting incident, in which he said.

Earlier, CNN's Alex Thomas caught up with the A-Dee-dus or Ah-dee-dass chief exec Herbert Hainer in Rio and asked him what an all-Adidas World Cup

final means for his company.

(BEGIN VIDEOTAPE)

HERBERT HAINER, CEO, ADIDAS: It's fantastic for us. It will on Sunday, I don't know how many hundreds of millions of people are watching,

but they only will see Adidas. This is, of course, fantastic for us.

ALEX THOMAS, CNN SPORTS CORRESPONDENT: And how surprising was the manner in which Germany did it?

HAINER: Oh! Good! As I have played football by myself, I know everything can happen in football, but this was surprising to me. Germany

had an excellent day. Brazil -- the Brazilian team, they had a bad day.

THOMAS: Because you've been in sports a long time. Have you ever seen anything like that?

HAINER: I will say not in a semifinal, when it then finally goes to the end stage of a tournament, I have never seen that, I must say. And I

was surprised by myself.

THOMAS: How has the World Cup in Brazil been for Adidas generally?

HAINER: Well, we're all more than happy, first and foremost with our teams, and it's not just Germany and Argentina. It's also Mexico, it's

Colombia. They really have played extremely well.

We can clearly say that within the last four weeks since the tournament started, we have outpaced every of our competitors in social

media, be it with the Brazil Cup, which by the way has over 3 million followers no, or be it our hash tag #allin or nothing. This is really

fantastic.

THOMAS: Luis Suarez has completed his transfer from Liverpool to Barcelona. What's your reaction to that?

HAINER: Luiz Suarez is definitely one of the best strikers in the world, there is no doubt of any sort. The amazing goals he scored against

the English team. And there was already discussions as far as I know at the end of last season that he wanted to leave Liverpool. Therefore, that

he is changing is not a big surprise to me.

THOMAS: Do you feel like with his transfer value tripling and going to a bigger club that he's almost been rewarded for bad behavior?

HAINER: I don't think so. Obviously, this was definitely, not to apologize, what he did, and therefore, he has been banned by the FIFA,

which I think is absolutely correct.

But he has apologized, and he is such a passionate football player, and to turn it around and say he is rewarded for behaving bad, I think this

would be the wrong conclusion. I'm sure that Barcelona has taken him because he's definitely one of the best strikers in the world.

THOMAS: Yes, Suarez is a sort of once-in-a-generation player, a bit like Lionel Messi. How much is the stage set for someone like him in a

World Cup final here in Brazil?

HAINER: Oh! When -- first and foremost, I don't think we have to discuss about the quality of Lionel Messi. If somebody got four times in a

row the best player in the world, then he's rewarded already enough.

But I also think that you can see that he makes a difference in the Argentine team. Even if he is -- he has a day where he's not brilliant,

every second he can decide a game. And I was at the game, Argentina against Iran, which was nil-nil after 90 minutes. And then, finally, he

decided it in the 91st minute by an action which he did by himself. He's just a fantastic player, and I always like to watch him.

(END VIDEOTAPE)

QUEST: That, of course, the chief exec, as you heard him say, he admits, it's Ah-dee-dass. The debate is over.

When we come back after the break, Ukraine and the situation there deteriorates. Frankly, what happens next as the number of lives continue

to -- the number of lives lost continues to rise. One nation shows that you can walk the tightrope between Russia and the European Union. The

prime minister of Georgia after the break.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest. There's more "Quest Means Business" in just a moment. This is CNN, and on this network the news always comes

first.

Japan's Meteorological Agency is reporting that a 6.5 magnitude earthquake has struck off the coast of Fukushima. The U.S. Geological Survey says the

quake was centered off Honshu Island. Almost 13 kilometers deep, a tsunami advisory's been issued to the pacific coast at the region of Tohoku.

Palestinians say at least 100 people have now been killed by Israeli airstrikes in Gaza. Nearly half of them they say, women and children.

Hospitals can't cope with 800 more who've been wounded. Israel's accusing Hamas of hiding behind civilians and says defensive will continue until all

rocket fire from Gaza stops. Germany's defending its decision to expel the CIA station chief in Berlin over allegations of U.S. spying. The country's

foreign minister says it was a necessary action in response to America's breach of trust. The minister said he was open to working on a reset in

American-German relations.

Senior Iraqi government officials say the foreign minister, Hoshyar Zebari, is being replaced. Zebari boycotted cabinet meetings along with all other

Kurdish politicians on Friday after the Prime Minister Nuri al-Maliki accused the Kurds of harboring militants in their autonomous region.

The Ukrainian army is pushing into rebel strongholds in the east on a day that saw considerably more bloodshed. Armored personnel carriers and

trucks carrying Ukrainian flags headed towards the rebel-held cities of Donetsk and Luhansk. Reuters is reporting the deaths of 23 soldiers and

border guards who were killed after a checkpoint was shelled. It's thought to be the deadliest attack since the unilateral ceasefire ended on June the

30th. Now, the prime minister of Georgia has ruled himself out of any mediation between Ukraine and Russia, and says dialogue is the only way to

solve the crisis. Six years ago, of course, Georgia was invaded by Russia. Now, Georgia has signed its on trade agreement with Europe.

If you look at the map, you'll see exactly the difficulties. There you have Georgia at the bottom of the map. But it has Russia to the north,

Turkey to the south and across the Black Sea, you see a similar situation for Ukraine with the E.U. to the west and Russia up towards the north. So,

Prime Minister Irakli Garibashvili of Georgia told me that when you look at the maps and you compare the situations, there is a way to coexist within

Russia on one side and the European Union on the other.

(BEGIN VIDEO CLIP)

IRAKLI GARIBASHVILI, PRIME MINISTER OF GEORGIA: I want to wish our friend country Ukraine and Ukraine people the peace and stability. I hope the

peace and stability will be restored soon. But as I mentioned, this is not my place to tell Ukraine -- the Ukrainian government -- which path they

should follow. This is our example -- we already set an example that one the one hand we're moving toward European Union, and this process became

irreversible by signing the Association Agreement with the European Union on June 27th. And at the same time, we are seeking to have a normal,

constructive relationship -- cooperating relationship -- with Russia. It is a fact that Russia is our neighbor, and as a pragmatic, you know, matter

-- the practical matter -- we have to have a normal, constructive dialog with them.

QUEST: If President Putin decided he actually didn't really want Georgia to build this greater bridge to the European Union, you might be having

many more difficulties than you are at the moment.

GARIBASHVILI: It should also be in the interest of the Russian side to have peace and stability here in the region. And, again, I think we proved

-- the Georgian side precedence (ph) proved that we are a constructive government. We are a constructive people and we want to have normal dialog

with everyone, including Russia. And Russia also readily improved and actually, you know, opened the market for Georgian agricultural, you know,

products -- food, wine. So, so far we are improving our technical relationship I would say.

QUEST: Where do you see long-term Georgia's position? Are you ultimately -- is the ultimate goal -- full membership of the E.U.

GARIBASHVILI: Absolutely. This is our, you know, ultimate goal, because the signature of this Association Agreement is just the beginning, and

therefore we made it very clear that the full membership of a big European family is the -- is Georgia's final goal.

QUEST: Have you seen perhaps a role for yourself, for the government, for Georgia to mediate something or at least to play a role in solving the

Ukraine-Russia situation?

GARIBASHVILI: Well I think this is impossible because we don't have a direct -- I mean, I don't have a direct -- dialog with President Putin.

Therefore, I cannot be a, you know, moderator or mediator between the relationship between Russia and Ukraine. So, because we still have our

problems to be resolved with Russia.

QUEST: You are moving towards the European Union, you have got to keep one eye on Russia to make sure that that relationship doesn't sour to your

detriment, you've got to keep your population on side and at the same time ensure that anybody's disgruntled. So, it's a tightrope, sir.

GARIBASHVILI: I'm privileged and I'm honored to lead my county, to govern this country and to navigate my nation through this difficult moment and

all this difficult path, but I'm confident -- I'm confident in this path and I think we will succeed.

(END VIDEO CLIP)

QUEST: President Vladimir Putin isn't letting the grass grow under his feet over Ukraine, or indeed anywhere else. And he's begun a tour of Latin

America with a gesture to Cuba worth billions. The Russian Parliament ratifies an agreement, it cancels 90 percent of Cuba's $35 billion debt to

Russia. CNN's Patrick Altman is live for us in Havana. Fascinating this, because of course Cuba is paranoid about what the relationship with Russia

is actually going to be about as Russia has its own domestic and other issues. Now they've got this very, very grand gesture in return.

PATRICK ALTMAN, CNN CORRESPONDENT: And according to Vladimir Putin at least, this gesture's much more about the future than the past, Richard.

You know, today he talked about the plans he has for investment in Cuba, a ten percent that Cuba's still expected to back -- a little over $3 billion

-- will then turn around, be reinvested in Cuba by Russia, so he's talking about cooperation on medical fronts, tourism and of course military.

That's welcome news for Cuba since a lot of their aging military equipment is from the Soviet Union. But when Russia talks about having navy bases

here, you see officials sort of freeze up a little bit. They've been down that road before and they are very concerned about that because their

number one priority is getting U.S. economic embargo on Cuba lifted. So this doesn't really help, but of course if you are Cuban officials and

you're trying to oversee basically a destroyed economy, you really can't turn down friends. So they are perhaps greeting President Putin with an

embrace, but perhaps not hugging at least as tightly as he seems to be. Richard.

QUEST: Right, but the issue is, is President Putin, do you think, out to cause mischief down there in the sense of he knows of course that not only

keeping Cuba on his side, but also a close friend is very useful in annoying the United States.

ALTMAN: Well it worked throughout the Cold War of course, and really this (approach/reproach) began right after the Ukraine crisis, and it seems to

be President Putin saying, you know, 'If you can annoy me on my borders, cause mischief on borders, well perhaps I can do the same for you.' And

just in the last few months, we've seen spy ships -- Russian spy ships -- show up in Havana, be hosted here -- not hidden away in some little port --

right in the center of Havana these spy ships come in. Russian sailors are walking around like it was the 1960s again. So, Havana is --to the Cubans

at least -- are seen to be willing to meet Russia halfway. There are agreements now to allow the Russians to explore for oil, security

agreements and certainly Vladimir Putin during his meetings today with Fidel and Raul Castro was talking a lot about the future between these two

countries. But of course, Cuba's looking more and more towards the U.S. as their future, but the suitor in town, it happens to be a Russian president,

not an American president, so that's what they have to work with and Vladimir Putin -- we'll see what he really backs up with, but, as you

mentioned, $30 billion --

QUEST: Right.

ALTMAN: -- cancelled in a debt they've been haggling over for years. And, you know, just immediately cancelled, so it's a pretty good start for the

Cubans.

QUEST: Patrick Altman in Havana where the weather looks absolutely glorious this afternoon. Good to talk to you, thank you, sir. Now, still

to come on "Quest Means Business," Brazil's defeat in the World Cup brought many fans to tears. We'll look at whether losing a match can depress the

country's stock market. We've been talking about this quite a bit. (RINGS BELL). After the break.

(COMMERCIAL BREAK)

QUEST: Ah hah, a bit of sambaing, and the least said about that, the better. On Sunday, Argentina and Germany -- yes, I've got it -- will face

off at the World Cup Final. The stakes are high for both teams, and according to my next guest, the result could potentially have an impact on

the market. Alex Edmans is a professor of finance at LBS in London. He has been leading us and guiding us throughout on this. His theory is

fundamental. It basically says if you -- when you get booted out the contest, your stock market goes down the next day. You're still holding up

to that theory, Alex.

ALEX EDMANS, PROFESSOR OF FINANCE, LONDON BUSINESS SCHOOL: Yes, I am, Richard. It's good to be back. So we've seen out of the 38 times where a

country with a developed stock market has lost a game. In 25 out of those 38 times, the market has fallen faster than the world market.

QUEST: Right.

EDMANS: So, when the Netherlands got knocked out, the market fell by 1.7 percent the next day even though the world market was only down by 0.7

percent.

QUEST: I'm going to show you that. Here's the Netherlands, and there we have -- oh, look at that! Wow! Netherlands loses to Argentina and the

market, you rightly point out, falls. And, Alex, it doesn't recover, does it?

EDMANS: So, when we did our study we found out that on average maybe about half of the initial decline would recover on the next day, but that's just

on average. There's sometimes it may not recover, sometimes it might fully bounce back. But on average, not all of it recovers afterwards. So we do

find --

QUEST: Right.

EDMANS: -- a permanent decrease because of the effect of investor mood.

QUEST: You have a problem with your theory, and the one that everybody wants us to talk about of course is Brazil. When the --

EDMANS: Yes.

QUEST: -- seven-one catastrophic disaster happened -- well, let's before you answer -- give me the -- . Here is the map or the graph. There is the

loss -- Brazil 1, Germany 7. But, Alex, the market went up because the market was closed the day after because of a holiday. But the market went

up and it has continued to go up. Doesn't this blow a hole in your theory?

EDMANS: You might think so, you might think I'm a masochist for being willing to appear on your program again rather than hanging my head in

shame. But actually there was a logical explanation. So, you're right the defeat was bad. It was in fact so bad that it severely damages the

President Dilma Rousseff's chances of winning reelection. And because she's presided over a long period of stagflation and also because the

Opposition Party is pro-business, actually she doesn't get reelected, the markets will go up, and that's why we saw the rise after the defeat on

Tuesday.

QUEST: So, you've got to look behind the numbers sometimes and look behind the loss. Are you satisfied -- finally, briefly, Alex, -- are you

satisfied that your theory has held true in this World Cup?

EDMANS: Yes I am because -- well on any particular event day you might have some other events, so the fact that this president might not be

reelected, that's where you want to look on average. So we wanted to look at all the 38 losses that we had so far, and as I mentioned, 25 out of the

38 including some of the major losses such as Italy losing --

QUEST: Right.

EDMANS: -- to Costa Rica, such as Spain losing to the Netherlands, such as the Netherlands going out. In all of those times, we have seen the market

decline. Only the Brazil result is an anomaly but there was actually a good explanation for that. Her platform --

QUEST: Right.

EDMANS: -- was very tied to soccer. She'd spent a lot of money on soccer stadiums which she previously promised to spend on hospitals and schools,

and that's why in her case, a big soccer defeat is so damaging for her reelection prospects.

QUEST: Professor, it's been marvelous having you on the program. Thank you, a very different -- next time, in four years' time, hopefully you will

have predicted who's going to lose and we could all invest before the match even happens. Thank you, sir.

EDMANS: See you again in four years. Looking forward.

QUEST: Oh, yes (LAUGHTER). Now, if you're watching the game on Sunday starting two hours before kickoff, go to cnn.com/worldcup. There you'll be

plugged into the full force of social media worldwide. We've got a war room -- trends, analysis, reaction -- in real time. Submit your questions,

photos and fire away on your own commentary. CNN.com/worldcup -- your second screen on your tablet, mobile phone or laptop. To Alexandra Steele

for the weather, and I see straightaway where you're starting.

ALEXANDRA STEELE, AMS METEOROLOGIST: All right, Richard, well we've just had a 4.6 aftershock to the initially 6.5 magnitude earthquake of the

northeast coast of Japan. Now, an aftershock really is normal. Usually we see two or three of these. So, originally the fears were tsunami, and also

of course the proximity to that nuclear power plant Fukushima. And both things -- the tsunami seems to have been averted. I mean, with a tsunami,

you can't predict a tsunami, but sea level features here -- the wave heights -- and we've reported 1 meter waves -- that has been measured. But

sea level data's used to determine whether there is a major change in the water and the height of it.

So, it seems like we've averted the tsunami, but also we've got word that there's no abnormalities or no changes to Fukushima as well. So on both

fronts, being the proximity to Fukushima and also of course the tsunami fears all seem to have been averted. So, here's the original -- the orange

-- showing you about 131 kilometers east of Iwaki.

But here is some red now and that is that aftershock -- the 4.6. So, again an aftershock certainly not rare. Tsunami advisories we have it here. No

tsunami warnings -- tsunami advisory. What that means quote unquote is get out of the water immediately and get away from coastal areas. But again,

tsunami advisory still in place, again, only one-meter waves reported from sea level data so certainly that is good news, so it looks as though, you

know, tsunami advisories will stay in place for a little while but we do not have of course any tsunami warnings.

All right, of course if you want to talk a little Brazil, of course the weather there incredibly hot. And we're also going to see really good

conditions. Two games left of course -- the big Final, a billion people supposedly watching TV on Sunday. Satellite picture dry skies (ph)

Brasilia and Rio -- that's where the two matches are. But we're going to see Brasilia the first match -- 24 degrees. This of course for third

place. We're going to see very warm conditions Brazil-Netherlands, and then Rio of course on Sunday weather-wise as well. No rain at all -- 24

warm and humid, so certainly good conditions. It's the Tour de France, Richard, that's going to get into the first real mountain stages, and

they've got rain coming for them. So, slick roads that's for sure. So that weather will certainly play a role.

QUEST: Thank you, Alexandra, thank you for the update on the earthquake and for the World Cup.

STEELE: Yes.

QUEST: We appreciate for that. Now, over the last four weeks, one word has dominated the "Quest Means Business" World Cup coverage. It has of

course been Vexillology which of course is the study of flags. And we will be back with a Vexillologist who will be telling us why, in a moment.

(COMMERCIAL BREAK)

QUEST: We have done battle over the last four weeks, not only on the pitch, but we've done battle in the studio. I've got flags wrong, we've

removed the wrong flags. Where's England? We left England here for far too long. In other words, over the course of this World Cup our

Vexillology has been at full strength. Now it's time to work out why do we love the art of flags? What makes a good flag? What makes a flag that

really rouses a nation? Scot Guenter is a Vexillologist, and the laureate of the International Federal of Vexillogical -- llological -- Associations.

He joins me now from Mount View, California. Scot, how good to see you, sir. Now --

SCOT GUENTER, PROFESSOR AND LAUREATE, INTERNATIONAL FEDERAL OF VEXILLOLOGICAL ASSOCIATIONS: Thanks for having me, Richard.

QUEST: Tell me, let's start with the flags of the two finalists -- Germany and Argentina. You believe -- what do we -- what can we -- make of their

flags?

GUENTER: Well, I think for any country, what's important about the flag is what it means to the people. What intrigues me the most about flags is not

necessarily the specific design, but regardless of what the design is, the power of that flag to move people based on their individual perception of

their identity and their collective sense of identity can do incredible things.

QUEST: But, Scot, some flags are alive -- I mean, you've got obviously Old Glory from the United States -- very full of picture. Some flags are --

well I'm looking at a certain flag because I'll offend somebody. Three colors, stripes one way or the other. They're -- I mean, what makes a good

flag in that sense?

GUENTER: Well if you're talking about flag design which is vexillolography, as opposed to the study of how flags relate to human

experience, I would say that there are five simple rules for good flag design, and I could enumerate those for you if you'd like.

QUEST: Well just give me the most --

GUENTER: Very briefly --

QUEST: -- important.

GUENTER: -- well, no more than two or three colors and use a symbol that's meaningful.

QUEST: Use a symbol that's meaningful. Which flags would you say are the best in the world that meet all the criteria that actually use simple

colors, have a symbol, speak to the people. I realize that's almost an impossible question to ask.

GUENTER: Well, it is because it's so subjective, because even if a flag defies these rules of good aesthetic design, it can still be so important

to people of that society that the aesthetic power is secondary to the sense of identity. One thing I might say to connect to some of the flags

of the World Cup, you mentioned the flag of the United States -- the stripes of rebellion in the flag of the United States hearken back to the

stripes of rebellion in the flag of the Netherlands which is one of these four countries still remaining. And the Netherlands was the first country

to use stripes of a symbol that signifies rebellion. And that symbol has spread around the world.

QUEST: Sir, thank you so much. Stripes for rebellion, stars, suns, moons, colors, flags. We appreciate your vexillological experience on "Quest

Means Business." And after the break, I'll have a "Profitable Moment." (Inaudible) after these flags.

(COMMERCIAL BREAK)

QUEST: Tonight's very "Profitable Moment" for Christopher Bailey, the chief exec of Burberrys (ph). Now, the chairman of Burberrys (ph) says

he's disappointed that investors rejected the CEO's bumper pay packet. Disappointed! The chairman should have been ashamed! It's a stinging slap

to the board, and the chairman in particular, who's supposed to be the shareholders' guardian. When we're talking shareholders, I don't mean

little old ladies turning up, I'm talking institutions.

And they said enough's enough. The problem at Burberrys (ph) is the chairman and the board forgot one very simple fact -- they don't own the

company, the shareholders do. And that's "Quest Means Business" for tonight. I'm Richard Quest. Whatever you're up to in the hours ahead,

(RINGS BELL) I hope it's profitable. I'm away next week. Have a good one.

END